Constructing the Index of Indonesian Monthly Private Consumption Expenditure

Abstract

Private consumption expenditure (PCE) contributes a major share in Indonesian GDP and its growth has been dominating the economic growth. PCE is also linked directly to the welfare of Indonesian people making it even more relevant for its close monitoring. However, despite the high volatility of macroeconomic conditions due to both global and domestic disturbances, indicators that measure PCE in frequency higher than quarterly is not yet existent in Indonesia. This paper is the first attempt to construct a monthly index of private consumption expenditure for Indonesia. Using a methodology based on the experience of other countries and constrained with data availability, we devise the index based on four statistically relevant variables: value added tax revenue, excise tax revenue, electricity consumption, and fuel consumption. Using the weights estimated based on the principal component analysis we found that our monthly PCE index fits well and correlate highly with the quarterly private consumption expenditure from the national accounts data. We hope that our initial attempt to construct the monthly PCE index will encourage others to devise even better measure of monthly consumption indicators.Private consumption expenditure, Macroeconomic Policies, Indonesia